Why Supreme Sold to VF Corporation
In a deal that values the New York streetwear brand at $2.1 billion, Supreme picks up a long-term partner with back-end prowess and ambitions to scale it past $1 billion in annual sales.
It’s the latest in a string of pandemic-era fashion deals, and one of the most significant acquisitions to hit the streetwear sector. VF is among the largest apparel groups in the world, and Supreme remains one of greatest success stories to come out of the mainstream collision of fashion and skate culture over the last decade.
In an intensely challenging retail environment, VF is betting it can leverage its size and clout against Supreme’s brand to roughly double sales to $1 billion.
“We see no upside limitation on the brand,” VF Corp. Chief Financial Officer Scott Roe told investors. “We see a clear line of sight to a billion dollars.”
Supreme, often dubbed the “Chanel of streetwear” because of the value of its cultural cachet, launched in 1994. It started as a single store for the skateboard community on New York’s Lafayette Street, but it quickly grew into a cult brand that came to define a generation of streetwear with carefully cultivated street ‘cred’ and an innovative business model, rooted in well-crafted but accessibly-priced product and tightly controlled releases or ‘drops.’
Founder James Jebbia has proved a savvy operator, navigating the delicate balance between street cred and corporate success. Supreme capitalised on its brand through clever and limited edition collaborations that bolstered its desirability and generated an active and lucrative resale market for its products. By 2017 Supreme had grown into a global business valued at over $1 billion, and catapulted into the high-fashion scene via blockbuster tie-ups with names like Louis Vuitton.
But the company’s growth has also crystallised the long-standing tension between the its counterculture ethos and growth ambitions. Supreme kept early investment from private equity Goode Partners quiet, and a reported $500 million investment from The Carlyle Group in 2017 made headlines in part because it seemed so at odds with the brand.
Both private equity backers are selling their stakes as part of the VF deal, and the prior investments don’t seem to have put off Supreme’s fans. In the last three years, revenue has more than doubled, as Supreme scaled its supply chain and opened new stores in San Francisco, Brooklyn and Lower Manhattan.
Today, Supreme operates 12 retail locations across America, Europe and Japan. But it generates more than 60 percent of sales through e-commerce, making it relatively resilient during the pandemic. While the overall apparel market has recorded steep declines this year, Supreme has enjoyed high single-digit growth and maintained a strong cash flow position.
“This is a really unique business model that works really well,” said Roe.
A brand like Supreme is an increasingly rare and coveted asset, as recent consolidation in the industry has meant the pool of privately owned targets with meaningful growth potential is becoming ever smaller.
According to VF, Supreme currently generates more than $500 million in revenue, up from around $200 million in 2017. Jebbia and Supreme’s senior leadership team will stay on at the company and are expected to grow that figure 8 to 10 percent by 2024.
“We are not coming in to make changes,” said VF CEO Steve Rendle. “We’re here to support and enable...a high performing business.”
That type of approach would be “the best of both worlds,” said Simeon Siegel, managing director of Equity Research at BMO Capital Markets.
“[If Supreme] will be allowed to run their business in the same way, then all they did was gain know-how and gain operational strength with the VF business.”
The acquisition of one of the most prominent streetwear labels is a natural evolution for VF, which already positions its brands Vans, The North Face and Timberland as having “street-inspired” inflections (all three brands have collaborated with Supreme in the past). The group sees the fast-growing streetwear space as a $50 billion market that complements its current holdings in outdoor apparel and activewear and appeals to a wide range of demographics.
“In the trends we see today, in this COVID environment of casualisation and consumers really looking to and engage with authentic brands with great meaning, that positions Supreme to be very, very strong,” said Rendle.
Supreme stands to benefit from VF’s operational support, including its supply chain and digital platforms. The group could also help the brand expand into new categories and open stores more quickly in new regions, particularly internationally.
VF’s low profile with consumers is also advantageous. Unlike more visible fashion groups, VF won’t cast a shadow over the Supreme brand.
But the question remains whether the very core of that brand, built on skating counterculture and scarcity, can sustain the company’s ambitions: grow too big, and it could lose its appeal altogether.
“Could it be bigger over time? Sure... But we're also not trying to get ahead of ourselves,” said Roe. “This very careful growth has... worked really well for the brand, and we're not trying to push it.”